Jamie Gray is a business reporter for the New Zealand Herald and NZME. news service.

Markets 'unruffled' by stalemate

The Lincoln Memorial. Photo / AP
The Lincoln Memorial. Photo / AP

The political stalemate over the US budget is so far having little impact on the financial markets, but that could quickly change as the October 17 funding deadline approaches, say market commentators.

The impasse has so far shut down the Federal Government for nine days. If an agreement is not reached, it could prevent the raising of the US Government's US$16.7 trillion ($20 trillion) borrowing limit.

"The markets so far have been pretty unruffled by it all," said Mike Jones, currency strategist at the Bank of New Zealand.

"In some ways that makes sense because the consensus view is that the politicians will continue to dither until they get some sort of 11th-hour compromise, in which case if you did take up a position you would have to quickly unwind it." Market participants said that if the US Government did default on a debt repayment it would be a technical matter.

"A US Government default, if it did happen, would not be through the inability of the US to service its debt - it would be a technical default and one that would be easily avoidable," Jones said.

Such a default would be in stark contrast to the turmoil caused by the Greek sovereign debt crisis of 2010.

"So the consequences of that would not be as dire as what we saw with Greece a couple of years ago - when there was no way they could stave off a default," Jones said.

But if a US default became a reality, it would put downward pressure on the New Zealand dollar because investors would be likely to turn away from the riskier currencies such as the kiwi, he said.

The New Zealand dollar has been trading sideways in a narrow range, finishing yesterday's session at US82.9c.


Get the news delivered straight to your inbox

Receive the day’s news, sport and entertainment in our daily email newsletter


© Copyright 2016, NZME. Publishing Limited

Assembled by: (static) on production bpcf02 at 28 Oct 2016 15:20:40 Processing Time: 246ms